ZBH - NYSE

Good morning, ladies and gentlemen, and welcome to the

Thank you, operator, and good morning, everyone. Welcome to

Thank you, David. Good morning, everyone, and thank you for joining today's call. I want to start today the way that I always start by sharing my sincere gratitude to the

Thanks, and good morning, everyone. This quarter, we grew sales 5% on an organic constant currency basis and delivered adjusted earnings per share of $1.90, which was up 9.2% year-over-year despite dilution from the Paragon 28 transaction, the impact of tariffs and continued investments in our commercial organization. As Ivan mentioned, we are encouraged by the progress of the U.S. business, which was up 5.6% on an organic constant currency basis year-over-year, driven by our new product cycle. This performance was partially offset by headwinds in emerging markets and certain non-core businesses that negatively impacted growth in the quarter by over 100 basis points. As we get into the details of the results, unless otherwise noted, my statements will be about the third quarter of 2025 and how it compares to the same period in 2024. And my commentary will be on a constant currency and adjusted operating basis. 2025 organic constant currency commentary and guidance excludes the impact from the Paragon 28 acquisition that closed in April. Net sales were $2 billion, an increase of 9.7% on a reported basis and 5% excluding the impact of foreign currency and the Paragon 28 acquisition. Consolidated pricing was 20 basis points positive in the quarter. Our U.S. business grew 5.6% on an organic basis, which reflects increasing customer adoption of recently launched products and strong robotic placements. Internationally, we grew revenue 4.2%, where emerging markets represented a headwind to growth. Global Knees grew 5.3% in the quarter with U.S. increasing 3.5% and international increasing 7.8%. This U.S. performance was driven by increasing penetration of our Persona OsseoTi Cementless Total Knee and continued adoption of our Oxford Partial Cementless Knee. International growth benefited from new products and the timing of orders in EMEA, which were partially offset by lower growth in China. Hips grew 3.8% with the U.S. increasing 4% and international increasing 3.6%. The U.S. growth was a result of our triple play of

Thank you, Suky. Operator, let's open up for questions. [Operator Instructions] Operator, please go ahead.

[Operator Instructions] We will take our first question from Robbie Marcus from JPMorgan.

Ivan, I wanted to ask on, I would say, guidance in general. On the last quarter call, you talked about scratching 6% in third quarter, which was above consensus at the time and you ended up at 5.0 for organic growth, and fourth quarter or the full year guide is ticking down. So really, the question is, how are you thinking about guidance philosophy? What happened exactly in the quarter? And any preliminary thoughts on how we should be thinking about 2026, recognizing that, excluding the easy comp from last year, we're sort of in a 3-plus percent growth range?

Robbie, thank you for asking that question. It's an extremely fair question. So let me unpack a few things here. So I -- as said back in August that I would be very surprised if we didn't scratch 6%. And I'll tell you what, I'm indeed very surprised that we didn't overdeliver on such number, not that we didn't scratch it, but rather that we didn't overdeliver on that 6%. For what it is worth, it was actually an undercommit and overdeliver comment based on what we believe to be a very strong data at hand at the time with the U.S. in July growing around 7%, robust growth across the board, not just in one region and in possession of a very solid pipeline of positive things happening across

We'll go next to Travis Steed with Bank of America.

One follow-up to that question. I guess, the 120 basis points this quarter, does that come back at some point? Is it a continued headwind in '26? Is it a positive or negative in '26? And -- I don't know if you can quantify that. And there were some comments on kind of a slowdown in the U.S. revision market. Does that continue as a headwind into next year as well? And there were also some comments I noticed in the script, where you remain highly disciplined on capital allocation. So just wanted to see what that means as you look into next year as well.

Thank you, Travis. I'll let Suky talk about capital allocation in a second. So this international noise, is it coming back in 2025, in the fourth quarter? Look, as I said, we're going to be measured. So we took that out of the guidance. So we're not counting on that revenue from those 3 key areas to be back in 2025. If it does, that's great. Do we think that's going to continue in 2026? Again, too early to talk about that. But what I will tell you is that as we think about external commitments made for 2026, we're going to stay away from putting some of these revenue from noncore areas in our external commentary and the external guidance that we're going to be providing. Suky do you want to talk about capital allocation?

Yes, sure. Let's start with a few data points. So this year, we're going to be generating over $1 billion of free cash flow, quite attractive. We're in excess of $1.6 billion, almost $1.7 billion of adjusted EBITDA, and we have a net debt leverage ratio in the very low 3s. So you can see there are some really strong fundamentals there, a very strong balance sheet with a significant amount of firepower. The way we think about that capital allocation then is we're going to prioritize businesses and acquisitions, assets that continue to move us into faster growth markets that continue to accelerate near-term as well as long-term revenue. But we're going to do it in a prudent way. And I think you've seen that with the Paragon 28 acquisition; very exciting Monogram transaction that we've done quite recently; OrthoGrid, which has been a differentiator for us. So we're going to continue that path, but in a disciplined fashion as we always have. But that also that very attractive balance sheet always gives us also strategic optionality to do share buybacks opportunistically as we see fit based on market conditions. So the net takeaway is that nothing has really changed fundamentally on our capital allocation strategy. If anything, it continues to get stronger.

And Travis, your other question there around the revision market that I failed to answer. So look, it's too early to tell. It's fairly choppy. One quarter, we see more revisions than the next. So it's a bit hard to predict. It's too early to tell whether we're going to see softness in 2026, when it comes to revisions. But again, going back to guidance philosophy, we'll account for that at the time we provide guidance for 2026.

We'll go next to David Roman with Goldman Sachs.

I was hoping maybe we could -- you could contextualize the performance in 2025 against the LRP targets that you laid out, I guess, about 1.5 years ago now. As I think about the guidance here, the midpoint of the range being in the 3.5% to 4% range and the 4% to 6% that you had provided, you would need each of the next 2 years to be in the 5% to 6% range to end up at the midpoint of your LRP. And I think, Ivan, when you talked through some of the dynamics that came up late in the quarter, those things like that kind of just happened. So does a material acceleration in growth require an everything goes right set of circumstances to get into the LRP range? And is it feasible to see growth in the 5% to 6% range going forward to get back on track with the LRP?

Thanks, David. So present and future kind of question here. So in the present, second half of 2025, we are growing mid-single digit or above. So -- actually mid-single digit, not above, so we are there. As we think about '26 and '27, give us a chance to get into February, we'll discuss what '26 and '27 looks like. I'll tell you, we think of the 3-year plan across 3 components. You got market dynamics, innovation dynamics and commercial execution dynamics. We know that from a market standpoint, the market supports companies delivering mid-single-digit growth, 4%, 4.25% market dynamics. So the basin is there for companies to deliver mid-single digit or above. As you move to innovation, the innovation cycle is working out. That is again why in the second half of 2025, we are delivering that mid-single-digit growth rate. And let's evaluate the sustainability or acceleration of that innovation cycle as we get into '26 and '27, but we're very confident that the innovation cycle is real and more things to come. And then you got the lingering question on commercial execution. Do we feel like today with the fragility we got in some noncore areas, with the changes we're making in the U.S., that can be an accelerator, that can be something that is going to drive sustainable mid-single-digit revenue growth? That's something we're evaluating, and that's something that we're going to discuss coming early 2026. But market is where it needs to be, innovation is where it needs to be. We've got to address some execution issues here. Thanks for the question.

We'll go next to Caitlin Roberts with Canaccord Genuity.

I guess, just turning to your product pipeline. You received clearance for your Iodine Technology in hips recently in Japan, and then, also announced the FDA granted the Technology Breakthrough Device designation in the U.S. You could talk through these developments and just the timeline for the launch in the U.S. and/or further indications beyond hip. That would be great.

Thanks for the question, Caitlin. So exciting product launch. We've been working on this technology in Japan for over a decade. It is one of the most complex clinical trials that I've seen in my 31 years in MedTech. And it's great news that we got approval in Japan. This is a $1.3 billion market, the second largest market outside the U.S. We're going to be launching at the end of 2025. And yes, this is going to be a meaningful revenue contributor for 2026. And again, we'll talk about it once it's time to talk about it with really good pricing. It is differentiated technology. There's nothing like that. It does suppress or prevent biofilm formation on the implant with again, robust clinical data for 10 years. It is technology that alludes over a prolonged period of time. So again, unique and something that we think is very compelling. Most importantly, the FDA thinks it's also very compelling. This happens to be one product from

We'll go next to Patrick Wood with Morgan Stanley.

Beautiful. You guys mentioned obviously some of the refocusing on growth and -- when it came to the incentive structure. Was that at like the rep level? Was that at the divisional head level? Just any more details on how you're structuring the incentive plan that kind of push people towards growth.

Patrick, it's at all levels. So this is a company that has gone through a lot over the last decade. You know that. And we fail to put the right incentive plan across the board. And today, we make external commitments around revenue, earnings per share and free cash flow. Yesterday, folks at different levels were not getting paid on those 3 levels of commitment. Today, I can tell you that every senior manager that owns a P&L here at

We'll go next to Larry Biegelsen with Wells Fargo.

Ivan, it looks like the recon market improved in the third quarter versus second quarter. What are you seeing into Q4? And Suky, you have this goal of EPS of 1.5x sales. Is there anything you would highlight for next year, like the tariffs, that would make it difficult to achieve in 2026?

Larry, yes, we did see an acceleration in Q3 over Q2. Overall, we look at trends. And if you look at post-COVID dynamics and you take out the backlog, we see the market as being healthy. And I think my peers that have reported already have said the same thing that the markets are stable, a combination of volume and price. In terms of Q4, look, I'm going to learn my lessons. I'm not going to tell you anything about market dynamics in Q4. I'm just going to tell you that the market overall is expected to be around 4%. Suky?

Yes. Thanks for the question, Larry. I think you'll see this year, and if you look back even over the last several years, we've been incredibly disciplined in growing margins and growing our bottom line in concert or better than our top line. As Ivan noted in his prepared remarks earlier, if you look at our earnings per share guidance for this year, we're basically right where we started at the beginning of the year and that's even after stepping over the tariff burden as well as integrating Paragon 28 as well as Monogram. So as you can see, we've been quite disciplined throughout the P&L and all the way down to cash flow. It's too early to talk about 2026 at this time. As Ivan said, we'll come out in February and give a lot more color on that. What I will point to though is, again, strong performance this year, which marks a number of consecutive years of very strong performance on margin and earnings.

We'll go next to Rick Wise with Stifel.

I'm hoping, Ivan, I can ask you to talk a little bit more about innovation, the very visible innovation that's innovation pipeline at

I love the question, Rick. So you spoke about waves. So maybe let's segment innovation of 3 waves. So Wave #1 was catching up on certain categories were absent. And that's the lion's share of what we're doing with what we call the Magnificent 7. And as you saw in the U.S., we delivered 5.6% growth, and this is largely induced by this Magnificent 7. . And in my prepared remarks, I offered all kinds of commentary around adoption rates for Oxford Partial Cementless, above expectations;

We'll go next to Matt Taylor with Jefferies.

I know that the guidance update here includes a more measured outlook for these international markets in the near term. I guess, would you expect some pickup in those areas that you saw softness in Q3 in 2026 just at a high level?

Thanks for the question, Matt, and I think Travis does something similar, and I failed to answer. No, we're taking those hiccups outside of any consideration for 2026. And again, I'm not going to talk on whether they're going to stick around or not, we're going to take them out. That's not in the guidance for 2026, the way we think about guidance today, again, too early. And they're not in the guidance for the rest of 2025. So as you think about narrowing the guidance from 3.5% to 4.5% to now 3.5% to 4%. So thinking of midpoint around 3.75%, and I think that's where we're going to land. That's a 25 basis point reduction or roughly $20 million. And that's largely induced by some of this volatility that we have seen in some of these noncore areas.

We'll go next to Joanne Wuensch with Citi.

I'm going to apologize for it in advance. I think what you're -- what many of us are asking today is, given the miss on the third quarter and the updated guidance for '25, how should we think about '26? And I'm respectful, it's too early to give that guidance, but is there a way to give us some maybe headwinds and tailwinds? Anything that you can help to sort of set our models correctly so that when we do get to guidance, we're not surprised.

Thank you, Joanne. No, you don't need to apologize, you are doing your job. So, again, early to talk about 2026, but I'll go back to the 3 key components of guidance; markets, commercial execution and innovation. Markets is definitely something that we have a lot of data on, and we like where these markets are at. On innovation, as per my answer to Rick earlier, love where we are with Magnificent 7, love the opportunities with things like iodine-coated devices in Japan and other markets. I love the fact that we're moving some of this innovation from the U.S. now into other geographies. So that's definitely something that gives us a lot of confidence. We just need to evaluate some of this fragility around commercial execution. So again, the sum of all parts will inform the guidance in terms of what is the right guidance. We'll be measured. We'll make sure that whatever we say externally has a very high probability of being able to achieve. Thanks for the question.

We'll go next to Matthew O'Brien with Piper Sandler.

Can we just talk about the U.S. knee market specifically? And -- I know you've got all these new products coming out. Can you talk about some of the mix benefit that you're getting already from these new products? And then, I don't have perfect information that one of your bigger competitors hasn't reported, I get that. But I'm still showing you're losing market share here in Q3 in the U.S., and it's a trend that's been going on for several years. So what I'm wondering is with some of these mix benefits you might be getting and maybe volume benefits that you could be starting to realize, as you get back into some of these accounts, is that something where there's kind of a lag effect where it could really rebound in '26 from a share perspective? Or do you need something else? I don't know if it's monogram, et cetera or some of these new ROSA placements to really help you stem some of the U.S. knee share loss.

Another very fair questions. So are we losing market share in the U.S.? Let's see what the quarter looks like once everybody reports, and we're able to analyze all the different dynamics. We are losing market share, I'll tell you, Matt, we're doing so at a much lower rate than we did before, which again validates that the innovation cycle is working out. And as we get into 2026, we're going to be in a much deeper stage of this innovation cycle with more stuff to come. So again, hard to tell what's going to happen in '26. But I like the momentum. I like the sequential growth we've seen in the U.S. I like the 5.6% growth in the U.S. I like where we are with Knees in the U.S., increased quarter-over-quarter, now 3.5%. And hips, look, it was not too long ago, Matt, that we're losing market share at the tune of 500 to 600 basis points, and now, we're growing mid-single digit in the U.S. So if we are losing market share in the U.S., it's not at the same pace as before, and this is still early in this innovation cycle. In terms of margin, yes, every single one, if not, most of these new products that we're launching have a better margin profile, whether it's Oxford Partial Cementless, whether it's Persona Revision in Europe, whether it's Persona OsseoTi, where we get better margin and definitely get a share of wallet opportunity. It's not just launching innovation, it's getting a better margin profile with this innovation. And relative to 2026, again, I look forward to the conversation in early 2026. Thanks for the question.

We'll go next to Ed Ridley with Rothschild & Company Redburn.

First of all, just a quick one on Paragon. Can you speak to the organic growth there that you're seeing behind the acquisition benefit and the momentum? And given Johnson & Johnson's announcement, a long-duration exit tends to throw up opportunities for others. Can you speak a little to that? And how you think there might be some opportunity there, both in terms of personnel or potentially geography?

Thanks for the question, Ed. So Paragon 28, maybe let's take a step back and recall what the thesis behind acquiring this asset was. We wanted to acquire something that was growing higher. We got in a higher market, or a higher market growth rate, that's Paragon 28. This market is growing solidly in the, call it, 6% to 8% range. We wanted to build a platform, not just buying one company. We wanted to build a platform around lower extremities. We've done that, whether it's lower trauma, whether it's foot and ankle and other components, biologics, we got that going on. We wanted to have a more meaningful presence in the ASC space. That's enabling that. I wanted to buy a company that had innovation today, but a pipeline for tomorrow. And all of that remains true with Paragon 28. The organic performance for the quarter was in the upper single-digit range. We are stabilizing some of the early, I guess, contract friction that you can see in this category, but everything is looking solid. We're not touching the guidance for the year 2025. We continue to see great momentum with commercial execution, and again, launching new products. And we think of this asset as something that needs to be growing double digit for a period of time. There may be some hiccups every once in a while. But overall, the organic growth of Paragon 28 should remain in the teens. And -- sorry, relative to J&J, look, I'm not going to comment on the disruption there. I want to be respectful to my peers out there. But there is disruption. Every time you go through a spin-off, divestiture, we've seen a hit at

We'll go next to Matt Miksic with Barclays.

One follow-up on the iodine hip -- iodine-coated implants and then just a clarification on some of the issues that impacted Q3. So on the sort of new implant line, you mentioned FDA's Breakthrough Designation. Wondering if that's a -- if that turns into a premium product, understanding that premium and negotiations for implant prices engages hospitals and requires value assessment committees and value and sort of that pathway. Is this a -- does this effectively kind of drive mix in a significant way? Or Ivan, are you thinking about this more as a way of catching more volumes here just because of the clinical benefits, the products you kind of bring? And I guess with FDA designation -- or Breakthrough Designation, is there a possibility for CMS sort of pass-through there to support a price lift? And then I have one quick clarification, if I could.

Yes. So on iodine, yes, to all of the above, Matt. So getting a Breakthrough Designation in the U.S. does enable premium pricing, better reimbursement dynamics. You go through value committees at a faster pace. And the assumption is that once we have this product in the U.S., it's going to command higher pricing. But let's not talk about the future and focus on the present. This is already happening in Japan. So with this approval in Japan, it's a similar dynamic. We are going to get a pretty significant price uplift in the country. And again, it's the second largest market for

Yes, sure. So second, just a follow-up on the restorative therapies, short with softness or whatever you would describe it as lower than expected orders. That's -- just to be crystal clear, my apologies, I should know this probably. But is this bone growth simulators? Is this glue? And also -- I understand there's some additional competition in bone growth, not that it's a business we spend a lot of time thinking about these days, but was that a factor? Any color on the product lines and whether -- what the dynamics were around that? It would be helpful.

Yes, absolutely. So first things first, let me simplify it. When we talk about restorative therapies, basically talking $110 million, $120 million of revenue, annual, and on one product, that's HA injection. So that's hyaluronic acid injections. And what happened is quite simple. I would say 3 things. One, we didn't budget adequately. So that's a mistake we're not going to repeat. We had some challenges on commercial execution because the focus has been elsewhere. And then thirdly, as you probably recall, there were some reimbursement changes in the U.S. through CMS that we thought that were behind, and they're not behind. So it's a really acute element of pricing that impacts this business. But I will say the sum of all parts is mostly commercial execution. And again, as we think about 2026, I keep repeating myself, we're not going to offer commentary. But when it comes to this noncore business, we're going to be far more measured in the expectations that we have from restorative therapies going into the year.

We'll go next to Danielle Antalffy with UBS.

Just a follow-up question. Ivan, you mentioned some high-level personnel changes and things like that. I'm just curious about, how far into that you are and sort of how we should think about that potentially impacting the next few quarters as far as any potential disruption? Or do you feel like those are pretty easily transitional, it's not much of a transition, so we shouldn't expect any issues there?

Danielle, thanks for the question. So first things first, the organization is always evolving, going back to strategic pillar #1. We're going to have the right people in the right jobs, people, folks that know how to make commitments and deliver on commitments. And once those things don't happen, we have to make changes at the right pace. Those changes are embedded in the guidance we're providing. So as we think about this guidance on both revenue and EPS, the assumption of these changes is already in there. On the commercial changes in the U.S., look, we're going a bit faster than before, but we were working on commercial -- on the commercial channel for quite some time, and that's also embedded in 2025, and it will be part of our 2026. So long-winded answer to say is reflected in the guidance, and we look forward to making these changes.

This concludes the question-and-answer portion of today's call. I would like to turn the call back over to Ivan for any closing comments.

Thank you very much. So my closing comments is that we continue to be proud of the evolution of this business, the improvements that we're making in this business. We're going to stick to the 3 key priorities of organization. And again, as we think about the rest of the year, we're very confident on when achieving the guidance. And as we think about 2026, we continue to see health. When it comes to market dynamics, we are highly encouraged about our innovation cycle. And we will address the fragility that we get in some pockets when it comes to commercial execution. Thank you for your time this morning.